Pakistan welcomes G20 debt relief, hopes for loan write-offs

A handout photo released by the Saudi Energy Ministry on April 10, 2020 shows Saudi Arabia's Energy Minister Abdulaziz bin Salman, second left, chairing a virtual extraordinary meeting of G20 Oil ministers Riyadh. (Saudi Arabia's Ministry of Energy via AFP)

• Over $12 bn of Pakistan’s debt repayment obligations have been suspended until Dec. 2020
• IMF will disburse $1.4bn in aid to Pakistan, in addition to $6bn bailout package

KARACHI: Pakistan has welcomed the moratorium on over $12 billion of debt repayment obligations from G20 countries until Dec. 2020, but expects its loans may be written off in the long term, according to a government economic adviser.
After a meeting in Riyadh on Wednesday, the grouping of the world’s most powerful economies-- the G20-- included Pakistan among 76 countries eligible for debt relief on all principal and interest payments.
“In the long-term these loans could be written off once there is some collective clarity in the United Nations about what is required to bring developing countries back on track,” Dr. Salman Shah, adviser to the Punjab Chief Minister on economic affairs, and a former federal finance minister, told Arab News.
“I think these things will definitely happen and at the global level,” he added.
With over $100 billion in debt to foreign lenders, Pakistan spends the largest chunk of its budget on debt servicing. Last week, it began a $900 million cash disbursement program to 12 million poor families left unemployed due to lockdowns enforced to contain the pandemic.
The loan moratorium is expected to give Pakistan a breather, and help the country reschedule loans with the International Monetary Fund (IMF), World Bank and other creditors.
“This is a short term measure,” Dr. Shah said. “[Pakistan] had to pay back between 10 to 12 billion dollars, so in a way, you get immediate liquidity so your reserves stay stable and you get some fiscal space.” He estimated the coronavirus pandemic had led to a roughly 10 percent hit to the country’s GDP.
Last week, Prime Minister Imran Khan appealed via video message to international stakeholders for urgent debt relief so less developed countries could more effectively deal with the economic fallout of coronavirus.
Following this, the IMF on Friday approved $1.4 billion for Pakistan to support the country’s economy which is projected to grow by negative 1.5 percent after the pandemic. This aid is in addition to its $6 billion bailout package to the country.
“The $1.4 billion RFI disbursement is additional to the $6 billion EFF to help Pakistan’s immediate efforts to COVID-19. The EFF remains in place. Staff & authorities continue to work closely to bring the second review to the IMF Board as soon as possible,” the IMF’s Pakistan office said in a Twitter post on Saturday.
Though the freeze on the country’s debt payments by the G20 until December this year will provide fiscal space, Pakistan’s development experts and economists say the move might not be enough in a pandemic scenario.
“G20 can play the most vital role, first by writing off loans and then by convincing others that this time, unlike previous epidemics, the COVID-19 outbreak has multidimensional effects. To cope with these, countries with huge surpluses and foreign reserves like China must assume larger responsibility,” a senior Lahore-based economist, Dr. Ikram Ul Haq, told Arab News.
Financial and development experts around the world have called for consultations among finance ministers and central bank governors of the G20 to further address the gravity of the deepening crisis in the world’s poorest countries.
“As Pakistan Prime Minister pleaded, the poorest countries need support by way of write-offs and not merely a moratorium on debt. This, of course, requires international cooperation and far beyond mere traditional solutions— deferment of loan and interest payments,” Dr. Haq said.